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World Week Ahead: US data, Spain top agenda

Monday 24th September 2012

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Investors will be eyeing a slew of US economic indicators and a potential Spanish bailout in the coming days to see whether the recent run in equities can regain upward momentum.

Among reports due in the US are the latest durable goods orders, personal income and spending and the final take on second-quarter gross domestic product. Expectations are that the data won't paint a pretty picture, especially when it comes to consumer spending.

"The US economy is clearly in a soft patch right now that could deteriorate into a stall," Scott Anderson, chief economist at Bank of the West in San Francisco, told Bloomberg News. "Consumer spending is really driven by jobs and wealth effects and the consumer's ability to borrow. All of those things are still suggesting moderate growth."

Last week failed to produce any catalysts to propel Wall Street beyond the five-year highs reached on September 14. Data on manufacturing in the US, Europe and China all indicated weakness.

In the past five days, the Dow Jones Industrial Average edged 0.1 percent lower and the Standard & Poor's 500 Index shed 0.4 percent. Europe's Stoxx 600 Index slipped 0.1 percent.

Investors have become more concerned about corporate profits in recent months. Third-quarter earnings of S&P 500 companies now are expected to decline 2.2 percent from a year ago, according to Thomson Reuters data, which would be the first such slide in three years.

In Europe, Spain remains a focus as the country is increasingly expected to have to ask for a full financial bailout with some expecting a request as early as this week. In Athens, Greece has yet to reach an agreement with its international lenders to access about 12 billion euros of additional assistance.

And Europe's leaders are well aware that investors are losing patience.

Financial markets "that are watching Europe want to see results," German Chancellor Angela Merkel said at a weekend meeting with France's Francois Hollande, according to Bloomberg. Still, "it has to be thorough, the quality has to be good and then we'll see how long it takes," she said.

Germany's Der Spiegel is reporting that the EU's new rescue fund will have the ability to leverage its capital to a capacity of more than 2 trillion euros, according to Reuters. Finland though is opposed to the idea.

Meanwhile, demand for fixed-income assets remains underpinned by the uncertainty. In Europe, Germany, Italy, the Netherlands and Belgium are set to auction bonds in the coming days.

And the US is scheduled to auction US$99 billion of debt this week.

"Although the economy is not double-dipping into another recession, the growth we're seeing is not robust," Jason Rogan, director of US government trading at Guggenheim Partners, a New York-based brokerage for institutional investors, told Bloomberg. "There's nothing coming out of the Fed saying that they will not come in and purchase more Treasuries."

BusinessDesk.co.nz

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